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On Our Radar

At crisis-hit Samsung, nerves jangle as annual review looms

People are silhouetted as they pose with mobile devices in front of a screen projected with a Samsung logo, in this picture illustration taken in Zenica October 29, 2014. REUTERS/Dado Ruvic/Illustration/File Photo
(Copyright Reuters 2016)

The logo of Samsung Electronic is seen at its headquarters in Seoul, South Korea, July 4, 2016. REUTERS/Kim Hong-Ji/File Photo
(Copyright Reuters 2016)

People are silhouetted as they pose with mobile devices in front of a screen projected with a Samsung logo, in this picture illustration taken in Zenica October 29, 2014. REUTERS/Dado Ruvic/Illustration/File Photo
(Copyright Reuters 2016)

SEOUL – The next few weeks are traditionally a tense time at Samsung Electronics Co <005930.KS> as executives wait to see if their work over the year is rewarded with promotion at the South Korean firm's annual performance review.

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This year, that tension has been ramped up several notches as the year-end ritual comes on the heels of the debacle over Samsung's flagship Galaxy Note 7 smartphone.

The world's top smartphone maker this month pulled the plug on the near-$900 device after phones overheated and caught fire. With some replacement phones suffering the same problem, Samsung has forecast a $5.4 billion hit to its operating profits. Some analysts predict the smartphone business may post a first quarterly loss for July-September.

"Everyone's afraid to be heard even breathing," said one Samsung employee. "There will be punitive measures; someone will have to take responsibility for this."

None of the Samsung employees Reuters talked to for this article wanted to be named as they were not authorized to speak to the media.

Samsung's annual personnel decisions - a common practice in South Korea around December - is a secret more closely guarded than even details of its new products. Executives are told about any changes only at the last minute.

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Samsung insiders say there is more nervousness this year than normal, and talk internally of sweeping changes, with a cull both in the executive suite and on the ground level.

"There's a lot of talk there could be major turnover in the executive ranks on the hardware side," said an insider at the mobile division. "There's also a lot of concern among the working-level employees about a major restructuring."

Samsung told Reuters it was not considering any management changes or restructuring in response to the Note 7 crisis.

FRUSTRATION

The sense of frustration among Samsung staff has been heightened by the company's inability to find the cause of the fires in replacement Note 7s that began shipping last month with what Samsung said were safe batteries, insiders said.

"We are working around the clock to analyze the causes of the reported cases," Samsung said in a statement to Reuters, adding it is premature to speculate on what went wrong.

In an internal Oct. 11 email apologizing to staff, mobile chief Koh Dong-jin - who has been in the job for less than a year - wrote of the "big wound" the scrapping of the Note 7 would be for executives and employees. Samsung confirmed Koh wrote to staff, but did not comment on what he said.

Some Samsung workers said there were already rumors circulating internally about which executives might be ousted. Some investors and analysts have said top executives including Koh may be held responsible at the year-end review.

Others said they felt ashamed when people they know ditched the Note 7 for a rival product or when they heard news announcements about the phones being banned from aeroplanes.

Koh and other Samsung executives have been active on internal messaging boards, discussing with employees how to deal with the Note 7 crisis, insiders said.

About 70 percent of Samsung's more than 325,000 employees work outside South Korea. It is not clear how overseas jobs or those at subsidiaries might be affected by the Note 7 storm; Samsung said it has no plans to cut jobs this year in Vietnam, a major smartphone manufacturing base.

TAKING IT SLOW

Internally, the mobile business was criticized by some for changing product specifications without delaying launch schedules, putting staff and suppliers under pressure to deliver fast.

"Some people who work in other business divisions feel something like this was bound to happen," said a Samsung employee at the consumer electronics division, noting mounting pressure on the mobile business to overcome slowing growth amid strong competition from rivals including Apple Inc and Huawei Technologies Co Ltd [HWT.UL].

A person familiar with the development of the next Galaxy S smartphone, expected to launch early next year, said the process has now slowed as Samsung is anxious to avoid any repeat of the Note 7 problems in its future premium handsets.

"Depending on the cause (of the Note 7 problem), certain configurations may need to be altered," the person said. "So the specifics for the (next) phone have not been finalised."

Samsung is not likely to bring forward the launch of the next Galaxy S smartphone to make up for lost Note 7 sales, the person added.

Samsung told Reuters it will take "any and all necessary steps" to ensure product safety, but did not comment on whether the Note 7 fallout was affecting the next Galaxy S phone's development.

($1 = 1,114.7500 won)

(Reporting by Se Young Lee, with additional reporting by Cynthia Kim and Hyunjoo Jin; Editing by Ian Geoghegan)